Peoplenomics

It’s called the index of fear. The VIX measures volatility or, more precisely, the expectation of market uncertainty over the next thirty days. Investors gauge the craziness and risk of the world, then forecast how much the S&P 500 (the broadest stock market index) will move over the coming month.

This may sound decidedly unsexy, but it matters. The VIX has just plunged as never before. Check this out:

As you can see, the financial meltdown of three years ago spiked the Vix to an unprecedented 80. That’s when the doomers forecast a depression. The mayhem of August took the Vix back to about 45. And the doomers predicted a bankrupt America and financial collapse. Today the Vix has slumped to 25. In fact, last week the index of fear withered the greatest amount on record, dropping close to 20%. The doomers drove themselves home to the suburbs.

So what?

So the crisis is over, at least until the next one. Volatility won’t end, but August sure did. So did fears of a US recession, as consumer spending and business investment jump. So did the commodities rout, as demand swells and prices recover. So did war, as operations wind down in both Iraq and Libya. So did the Euro disaster, as bondholders take a haircut and the bailout pot grows.

Meanwhile corporate profits continue to augment, the OWS movement squanders its potential and it dawns on more people that stocks are priced 24% below their ten-year average, based on the money companies are actually making. This is what the Vix is trying to tell us. Also why you can come out of the bathroom now.

As this pathetic blog argued through the last 90 days, there never was any reason to panic or, God forbid, sell. The US debt ceiling impasse did not mean America was bankrupt or about to default, as so many metalheads and depressionistas argued here. It was politics. The fact Greeks are tax-evading, fiscally gluttonous, hedonistic Euro-suckers did not mean the end of Europe or the collapse of banks. And there was no damn way central bankers were going to allow anything other than a global fix to happen.

Of course, the world’s still awash in debt, the Mideast’s as stable as Charlie Sheen and the American middle class has a big self-inflicted wound. Problems abound and the gulf between those who have money and the rest of us is now an ocean. Most people are in disgusting financial shape, and will pay dearly for their addiction to real estate and borrowing.

But if you’ve been rooting for an apocalyptic settling of scores, suck it up. Ain’t happening.

It’s a reasonable bet that equity markets will continue to lurch higher, and finish the year with a decent positive return. Quite the reversal from the stockageddon we all heard about. Bonds will come down in price and rise in yield at pretty much the same time. That will make preferred shares cheaper, and you should buy a mess of them. It will also raise long-term, fixed mortgage rates, so if you’ve been thinking of locking in, this would be the moment to do so.

Above all, it’s more evidence most people do the wrong thing almost all the time.

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“Peoplenomonics. So what? It’s called the index of fear. This may sound decidedly unsexy, the Mideast’s as stable as Charlie Sheen and why you can come out of the bathroom now. Sigh.”

And now for my next trick . . . more of the same! Yes, the world keeps churning and spinning and doesn’t give a fat rat’s ass about our whining.
*Tickling A Dragon’s Nuts in The Year Of The Plague (2012), a.k.a. Fairy Dust For Wombats.

Don’t know ’bout y’all, but I had a terrific weekend studying the feeding / breeding habits of the adult mudshark, at the very base of the Pacific Ocean.

Little dark and fuzzy there (equivalent to the space between my ears), but an excellent experience nonetheless. Highly recommended for anyone thinking of losing weight before xmas.
*0:51 clip Occupy DC. No one else is; Greenbax and other paranotnormal activities; Homeless “The criminalization of homelessness feeds the prison/industrial complex as well, where people are paid pennies on the dollar for what jobs are worth, and becomes a major revenue stream, particularly for private prisons.” wrh.com; Squeezed “How Goldman Sachs Created the Food Crisis.”; 25:05 clip Double standards on economy. It’s the west. What else can be expected? You’ve Never Had It So Good! Honest! Student Loan Debts + Joblessness = Revolution; Bailzone What of replacing the EU with Atlantis? Food Inflation The real McCoy, not the govts. lying figures.

CC has ceased to function; Good to know that the unelected directors of public depts. are serving so well in their areas; 1:42 clip Obomba the warmonger; Shit List Not a bad place to be; Not CC “Snow didn’t stop America’s first Revolution…. why should it stop this one?” wrh.com; Oakland Almost identical to Palestine; 5:20 clip Odamn must be desperate for cash, ‘tho his re-election is almost overflowing with money; 4:25 clip Japanese zombie soup.

Libya “And the US Government, which justified the bombing of Libya into the stone age with the excuse “protecting the Libyan people”, does nothing.” wrh.com; 2:44 clip To not protect and severely hurt; Ahlem and Nezar Two young Palestinians; Instability? The US was the one who bought instability to the region when they invaded Iraq.

World is indeed awash in debt. And it is at least equally awash in savings since, one man’s debt is another man’s savings.

Every dollar borrowed by a country consists of a bond, which a saver views as his savings. He saved money and loaned it to the government.

Every dollar borrowed for a mortgage, a credit card or a line of credit is backed up by the deposits (savings) of someone (or the equity and debt of a bank which also represent someone’s savings).

Yes, you silly fractional-reserve-banking alarmists, banks do create money. This happens when money they loan out is redeposited back in as someone’s savings and then loaned out again and the cycle repeats.

At the end of the day savings are always larger than debt, since not all savings are loaned out.

The point is folks, many of us are NOT in debt and in fact are hugely in savings of one form or another.

When you told your Mom in grade 10, that “everyone” failed that exam it was not true. And when you tell yourself today that “everyone” is also in debt up to their eyeballs, just like you are, it’s not true. You know it, I know, God knows it and if the truth be told, even your Mom knows it.

Garth, you made my day (or rather, night) I am overseas and is past midnight here, time to go beddy by. But before I trhow myself in the arms of Morpheus, I like to check your (sym)pathetic block to see if there are any new entries. Tonight, to my delight you were early to post and now I could go to sleep a satisfied woman.
Thanks and goodnight!

Garth, the challenge you face is that when you post a doom and gloom synopsis of the real estate situation one day, it attracts the doomers and gloomers. I’m sure you know that. They eat it up.

Then you turn around the next day and post a more rosy account of the markets, it turns off the doomers and gloomers, who want to use you as their own lightening rod (but can’t).

I don’t admire the fine line that you have to walk…

In terms of the doomers and gloomers, I have to say, they are as devoted to their causes as the real estate boosters and speculators.

I worked at TELUS with a Real Estate Investment Network convert in 2007. Her name was Lana May. She and her husband Jude had moved from Vernon BC, to Calgary AB, and a few places in between, buying real estate and selling it whenever they sensed a peak.

Lana had every argument about why only losers rented, and only people who invested in real estate got ahead. She worked incredibly hard (at lunch time) trying to get her TELUS co-workers to buy, buy, buy.

I was sickened by that loser, and I never bought the cool aid she or REIN were selling. When Calgary’s market crashed, she and her husband Jude got out (right before) and moved on to Barrie Ontario… Guess what they are doing out east now?

Well, my point though would be that for every speculator and flipper, there is a doomer who works equally hard to try to get you to dump your shares or real estate, so that they can swoop in and vultch the spoils… It’s sad how everyone here has an agenda, and the innocent spectator (if there is such a thing) has to constantly be checking his or her bull shit meter.

These so called “fixes” to the economy (especially Europe) are only blowing the bubble bigger. They are pretty much bailing out Europe with a pledge of money “leveraged” up to the tune of 5x (i.e. money that does not exist). Can’t cure the world’s woes with more debt and leverage….nope… not gonna work even though the appearance seems so. I honestly think the surprise will not be Europe but from China. Buckle up.

The VIX used too be a solid tool but with so much manipulation has become IMHO an unreliable one. Given it’s investor driven need I say more as even the savy one’s find markets confusing, short term and some have just given up (but they wont say that too their clients) and will go with the flow or long!

The VIX is now a lessor indicator for me now, once a top 10 falling off the daily radar!

Remember folks, this is all pretty well orchestrated even with the finger pointing your hear about.

On the RE front, watch CHINA! The chinese (at least a new generation) and some of the old who remember 1997 are finally waking up to the fact that property doesnt always rise!

Watch for a trigger of events such as the latest rioting on fire sale prices on not yet sold RE to spur more of a wake up call.

Know wonder China wants to sensor everything they can. Two governments in China now may widen their views and in that event widen their gap on where things need to go.

Try the Baltic Dry Index for a better view as this is directly showing the consumer driven economy which is all the Western world relies on for GDP, employment and just about every other facit of life we live today!

I don’t believe the crisis is over. We seem to be stuck in a permanent stall where the world isn’t ending, it also isn’t getting better. Half of me says go long half says go short; I don’t think I’m the only one feeling paralyzed.

“The proximate cause of recent volatility is the continuation of Europe’s debt problems. The deeper cause is the realization that future growth will be low and the lack of policy options.

In 2008, panicked governments and central banks injected massive amounts of money into the economy, in the form of government spending, tax concessions, ultra low interest rates and “non-conventional” monetary strategies—code for printing money. The actions did stave off the Great Depression 2.0 temporarily, converting it into a deep recession—the U.S. economy shrank by 8.9% in 2008.

As individuals and companies reduced debt as banks cut off the supply of credit, governments increased their borrowing propping up demand to keep the game going for a little longer. The actions bought time. But policy makers did not use the time to prepare the global economy for an orderly reduction of debt. There was little attempt to address structural problems, such as persistent trade imbalances between China and the U.S. or within Europe or the role of the U.S. dollar as the global reserve currency.

Governments gambled on a return to growth, solving all the problems. That bet has failed.”

Once again Garth, you’re right for all the wrong reasons. If stock markets climb it won’t be because of investor confidence. If the next great depression has been stayed-off, it is because of trillions of dollars ‘loaned’ into existence by central banks around the world. Greek bailouts and increases in US debt ceilings will boost equities markets, raise interest rates, increase salaries and most importantly fuel ‘mega’ inflation. This will also put a damper on your dire predictions for housing prices. If the economy goes into recovery mode, a $500,000 condo won’t seem as crazy when a tank of gas is $400, or an ounce of gold is $4,000 :-))

While Harper talks street hockey – I think I will stick with hanging out around here and getting some advice in verbiage that makes sense.
Only took 3 Economics courses in University.
Other than lucking out and having two visionary Profs, outa threw – while at Univerity -I can honestly say, I think I have learned more here.

The new book is eagerly anticipated.

Guys – let’s get Harper riled and start a petitition to get Garth a Senate seat!

People think by moving money from their left pocket to their right pocket will fix their money problems. That’s all they’re doing is moving money around. Unless there is a new source of money (created by something real), all they are doing is taking money away from Peter to pay Paul. So I think a depression is the most likely scenario. And I don’t think that is a doomer opinion, I think it is a realistic opinion.

2: The effects of inflation on currency that is not backed by anything other than a promise.

The money borrowed must be repaid with usury and as such compounding interest which is exponential. The money borrowed must create work and from such growth to try to stay ahead (but it wont given time). Fact is this work/growth will not outstrip the compounding interest. This exacerbates with time putting debts behind credits.

Inflation from non-backed currencies lowers the worth of each dollar thus created. It may be for discussion sake $1.00 today but based on ever more printed fiat currency the money becomes worth less than the $1.00 it was when borrowed. It may for sake of argument be only worth $0.95 tomorrow. You have to create more work/growth from it now to try to recover its deflating value and again lets not forget the poison of compounding interest.

Of course my few words do not cover it all and books can be written about all this but sorry your rather simple logic is flawed in the greater scope of the situation.

There will never again be an asset-backed currency in a major western country. Next time tell us something useful. — Garth

Ummm. Perhaps you should have given greater analysis as to why just after the start of 2007 the VIX spiked over 100% and has stayed elevated for almost four years now. That’s more interesting. The official recession didn’t start until Dec. 2007. Bear Stearns bit the dust in March of 2008. A 20% move on the VIX in this current environment is neither here nor there.

That said my previous post was only to hi-lite to Shawn (Investors Friend) that fiat currency only really creates devalued worth, a sort of hidden wealth robber. But compounding interest on debts is what ultimately does in real growth and steals from all in society.

This week’s relief rally in the markets was very welcome but I’m still feeling bearish overall. Too many uncertainty and mixed signals all over the place.

Therefore, I’ll probably dump all my XIU’s if it reaches a share price of around $18.75 by the end of the year. Then transfer a lot of that cash to an XBB, given that bond yields will indeed probably rise.

Wow, that is all I can muster to describe your post today. I generally agree with you. Your views are usually well reasoned and balanced but not today. I suggest a quick read of the following person and some of his posts

There are still material risks because of what is happening in Europe. It does not mean that there won’t be short term market gains but the mid-term performance is far from assured. You make it seem like we are fully in the clear, which is not necessarily the case. Your sheep may get slaughtered if they run blindly to invest in the market. Two senior Wall Street derivatives traders i know are 60% cash.

Where did I ever tell people to ‘blindly invest in the market’? How many times do I need to write about a carefully balanced portfolio of government, corporate bonds and real return bonds, trusts, preferreds, sector and index exchange-traded funds? Why do so many people on this blog think in black-and-white? A balanced portfolio (40 fixed, 60 growth) from 2008-10, through the greatest crisis in a generation, returned 5% annually . And this is no 2008. — Garth

Folks, Europe’s debt woes have not been solved. China is experiencing inflation and a slowing economy, Brazil and India are also slowing down and in regards to the situation in Europe, no European fund, regardless of size, can cope with the ever mounting level of financing required by Portugal, Spain, Italy, and now Belgium, and at the same time cope with the financing needed to recapitalize Europe’s largest lenders.

Rubbish. There will be no dominoes, no matter how many different names you post under. — Garth

Greed and avarice are at the center of a majority of Canadians retired plans….lottery wins and ‘granny bashing’ are tops on the ways that ‘the kids’ plan to get out of debt and become the ‘entrepeneurs’ they’d always fantasized themselves to be. Out of the bsmt suites rise the ‘inheritance cases’ who’ll fight and squablle to the death to get hold of mommies money.

I saw this hundreds of time when it was my job to negotiate contentious estates…brothers suing sisters…..uncles and aunt…..greedy lawyers know that game but I did one better……..figured out how to push the lawyers out. Deal with greedy parasites for a few years and life is understandable.

You said, “At the end of the day savings are always larger than debt, since not all savings are loaned out.”

False. There is considerably more debt in the world than savings. Many times. This is why we still have a serious banking crisis in Europe and beyond. You should learn more about the financial crisis, itsncauses and whynwe are still at risk.

You’re right that net debt is the net savings (domestic and foreign). When the fed Govt reports $550 billion net debt, they also report that savers have lent them that amount and about 70% of the lenders are Canadians, Canadian companies and institutions.

However, banks do not create money. Money is created by the Govt spending into the economy. Taxes drain money from the economy. Everything else is double entry bookkeeping.

A bank decides to approve a loan and extends credit; money is deposited in the borrower’s account usually at the same bank. The entries cancel out due to double entry bookkeeping. If the borrower moves the money to another bank or spends it and the vendor deposits the money in another bank, it still evens out as all banks total their daily balances and may have to borrow from each other. Banks are NOT reserve constrained and therefore DO NOT operate on the fractional reserve system.

Only the Govt creates and drains money from the economy.

The issue right now is that there isn’t enough money in the economy. IMHO, this is why people are protesting. Unemployment and poverty is too high. Inequality is NOT the reason; but actually the 1% earned a greater share of income back in 2007. And there were no protests back then because people were employed.

The Govt should spend another 1-2% GDP into the economy and direct it at the bottom 30% namely the jobless to raise their incomes. These dollars will percolate through the economy and eventually the 1% will get some of it and likely inequality will WIDEN. But more people will be working and fewer living in poverty.

Cutting spending has the same effect as raising taxes => less money in the economy. Tory times = tough times because the inclination is to pare back spending and balance the budget, only it makes it worse.

Ummm. Perhaps you should have given greater analysis as to why just after the start of 2007 the VIX spiked over 100% and has stayed elevated for almost four years now. That’s more interesting. The official recession didn’t start until Dec. 2007. Bear Stearns bit the dust in March of 2008. A 20% move on the VIX in this current environment is neither here nor there.

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I guess you don’t have money. — Garth

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Uh huh. You making a bull/bear market case solely with the VIX and having it hovering around 30 when it was 10 in 2007 is similiar to claiming full employment when the U.S. ever gets back to 7% when full employment was 5% in 2007. The VIX right now doesn’t prove anything. Your graph is weak. Your rebuttal is weaker.
Sorry this spate of reality does not align with your theory. The VIX reflects the events I referenced. Feel free to address them. — Garth

I agree with you for the most part. because i sold 3 stocks early this year and bought 2 this month. the 2 new ones are doing ok..1 down 13% oil stock and the other up 10 %

but i still think there will be other correction this year . b/c they didn’t solve the debt problem…they just threw money @ it like throwing more water into a cracked pot… w/o fixing the pot or gettin a new one. so we wil see…. no worries both companies good cash flow/ dividend yield and strong assets relative to their industry of course

If you’re waiting for the debt problem to be ‘solved’ by everyone defaulting, good luck. — Garth

You were right on some things, yes but not all. You were predicting dropping commodity prices because consumers were tapped out, high unemployment, etc etc, but commodities on the rise again. PM’s also moving again. All expected of course. People always forget there are more countries than the US and those countries are growing fast.

The PM market and commodities are not over yet. Someday, yes, but not yet. Gold will still rise and so will silver. Ha, look at me, I’m not even a fan of gold at all, but yet you cant deny it’s rise. I find most North Americans do not understand gold. Go to the middle east, Asia, even EU and you will ee just how important it is to those who have been through currency collapse in past. We havent experienced it here, so we can’t clearly understand it.

So yes, some things on your pathetic blog you predicted were accurate…..but definitely not all.

“The average price of contracts on the Chicago Board Options Exchange Volatility Index for March through June plunged 8.7 percent in the past two days, the biggest drop on record, according to data compiled by Bloomberg.” Source. — Garth

Therefore, I’ll probably dump all my XIU’s if it reaches a share price of around $18.75 by the end of the year. Then transfer a lot of that cash to an XBB, given that bond yields will indeed probably rise.

You apparently didn’t look up what happens when you own a Bond ETF (holding bonds paying today’s low rates) and rates go up… your Bond ETF will go down, because the bonds it holds go down in value.

Well, I am happy. The markets have recovered (much) employment is gaining traction, at least my son got called back to work ending what seemed like a forever lay-off.
I’m getting ready to call an end to work and retire!

Here in the US Oct is on track to be the best Oct since 1974. For those old enough to remember 73-74 was an awful recession, aided by inflation. THAT too, passed.

I have read some of the Doomer-Gloomer-Boob links in the earlier e-mails, and I gotta wonder, WTF are you guys smokin’???

Yes, the economy sucks. Yes the job market sucks. Yes, the RE prices are too high-or too LOW that sucks. YES prices on some things are going up THAT sucks.
YES rates on savings are WAY too low THAT sucks!!!
Get over it.

All things change with time. Stock Prices rose last month, Bond prices slipped. Life went on, too.
I don’t HAVE a working crystal ball, but I still believe we are heading for a better patch….not Nirvanna….. a better patch of time. Enjoy it. It won’t last forever, but then neither will I. I intend to be well fed & comfy how ’bout it?

Reading Garth’s unusually sunny investment-focussed essay, got me wondering about things. For insstance the first question that came to mind was this one: “Am I too doomer even though I’m doing really well in the markets these days?”

Hmmm, I added. Which meant that I had, and still do have, reservations (not the dinner kind)!

So, in a fit of market-driven sturm und drang, I visited the German magazine’s Der Spiegel ‘site this evening and found HOPE!?

EURO BANKSTERS TO GET THEIR’S, SAYS THEIR LEAD STORY, OR WORDS TO THAT EFFECT!

Moves are afoot to put the greedy banksters of downtown Europe in their place, says an article from Brussels, Ground Zero for the eurocratic elite.

“The Good Bankers
Battling the Financial Lobby in Brussels

Thierry Philipponnat is the secretary general of Finance Watch, a new Brussels-based group that aims to serve as a counterweight to the financial industry lobby.

For the first time, the estimated 700 financial industry lobbyists working in Brussels can now expect to meet with some resistance. Though extremely outnumbered, the new organization Finance Watch is preparing to confront them head-on — with a former industry insider at its helm.

…Although efforts are underway worldwide to regulate the financial industry more rigorously, implementation is a different story” where European pols “are under constant observation and attack by an estimated 700 financial lobbyists…

…Philipponnat is careful to point out that: “‘We are not an anti-bank group, nor do we condemn any lobbyists.'” The only thing that Financial Watch really wants, he explains, is a balanced debate that includes not only the players, but also those affected by their actions.

…In addition, Philipponnat and his team will make themselves available to the parliament and the public to serve as individuals who can debate with bankers and hedge fund managers on a level playing field.

GOOD NEWS INDEED FOR THE BULLET-RIDDLED MIDDLE CLASSES

I predict that this amazingly democratic “event” will occur amongst the US banking/government elite circles shortly after Hell freezes over, or when the plastic/buffed wives of Wall Street’s finest peckerheads, stop going to their gyms!

Europe’s governing elites, nice suits and long lunches excepted, are starting to show some brass orbs.

This pathetic blog always moans about the credit injected into the system by F and the boys that bubbled up real estate, then on the other hand goes ahead and fully advocates super bailout packages to the like of europe and the banks. Nothing like talking out of both sides of your mouth. If debt is bad, then its bad everywhere and you can’t be selective about it. Rescuing insolvent institutions is no better use of debt than pushing subprime mortgages to people and ends in the same way.

“investors pushed up the cost of borrowing and then cut
off access to funding.”

“America has been able to run large budget and balance
of payments deficits because it had no problems in
finding investors in U.S. Treasury securities”

“The world’s largest saving pool has allowed Japan to
manage till now. An aging population and a related
slowing in its saving pool will make it increasingly
difficult for Japan to finance itself in the future.”

I do agree with Garth, there is just WAY too many people who think the world is coming to and end, and NO, it isn’t. The only thing that comes to an end is the daylight at the end of the day. But don’t worry, it comes back again the next day.

Now as for houses; thats a tough call because Canadians are a different breed, they buy and buy and they never sell for a loss, so while people might be pained by the fact that in a few years they cannot sell for what they OWE, they WON’T sell unless they can get what they owe, and that will limit their mobility to follow the job market. That’s all. Prices will stay high because consumers simply WON’T sell for a loss, and this will continue for years, if not decades.
That’s what I think will probably be happening in the Greater-Toronto / Golden-Horseshoe regions.

Ummm. Perhaps you should have given greater analysis as to why just after the start of 2007 the VIX spiked over 100% and has stayed elevated for almost four years now. That’s more interesting. The official recession didn’t start until Dec. 2007. Bear Stearns bit the dust in March of 2008. A 20% move on the VIX in this current environment is neither here nor there.

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I guess you don’t have money. — Garth

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Uh huh. You making a bull/bear market case solely with the VIX and having it hovering around 30 when it was 10 in 2007 is similiar to claiming full employment when the U.S. ever gets back to 7% when full employment was 5% in 2007. The VIX right now doesn’t prove anything. Your graph is weak. Your rebuttal is weaker.

Sorry this spate of reality does not align with your theory. The VIX reflects the events I referenced. Feel free to address them. — Garth

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Ok. Then feel free to address what caused the intial spike in early 2007, which appears to be the catalyst for where we are today. Point being, it isn’t as obvious as the other arrows on your chart. Once you have the answer to that question you will have a bigger picture and be able to put this trivial move the past 2 weeks into context. My point above was there is a reason the U.S. will never get back to 5% full employment any time soon if ever and there is a reason why even though the VIX has fallen sharply “very recently” it will also stay at elevated levels for years to come. So you can’t make sweeping proclamations based on it.

You have no point, other than being wrong. My source material proved that. — Garth

Wild weekend…LFCPFS (former BFT) done Saturday and these 45 year old bones feel every bit beaten and dragged down. Apart from that, hurting and sore, I was able to cover the window my son broke this summer with his slingshot.

I really have nothing to offer that would augment or contend with today’s sage and august wisdom so tonight will only have me stating the following…
Hi everyone…have a great week!!! :-)

29 Habs – Ah the ole’ compound interest. Yes. AKA a form of “implied liability”. Well, what happens when that compound interest appears on the ledger and is paid by
the borrower? Well, it can go several places:

41 Vee-why-dubya – ah yes the ole’ money creation
thing. A valid point but more based on definition of
money. I guess we could say banks just create savings and debt – essentially contracts. As you point out in 43, the crisis happens when the contractual obligation can’t be met.

#23 Foggy – “Brilliant marketing on that For Sale sign. If you’re declaring your neighbour is an a$$hole – then why would I buy your house?”

Depends how you interpret it. Here’s the way I figure.

The neighbour who thinks his neighbour is an a$$hole put the sign on the neighbour’s lawn that he thinks is an a$$hole.

The neighbour who is thought to be an a$$hole by his neighbour is actually vacationing in Hawaii for a couple months and doesn’t know that the neighbour who thinks he’s an a$$hole put the sign on his lawn.

Now, the neighbour who thinks his neigbour is an a$$hole, puts his house up for sale with a realtor in hopes of selling it before the neighbour that he thinks is an a$$hole gets back from vacation.

The guy buying it will think he is buying the neighbour thats the a$$holes’ house so is not concerned about it.

After he buys the house and the neighbour who the other neighbour thinks is an a$$hole returns from vacation, he discovers that the neighbour with the sign on the lawn is the real a$$hole.

So you see Foggy, the house with the sign on the lawn
is not the one that’s for sale. It’s the one next door.

VIX is, like the majority of indicators, a lagging indicator, which means that it describes what happened in the past and doesn’t predict what will happen in the future.

The way of reading this indicator is to buy when the indicator is sky high, that is when people are the most fearful, and sell when the indicator is low, when people are becoming complacent. By looking at the chart provided here, it is definitely not a buy signal. If you base your investments solely on this indicator, it’s time to wait for the next opportunity…

Now, the broader question that one should ask is: have the underlying reasons of the crisis been solved? Just last week alone, the European Bank Dexia went bankrupt and Greek bondholders took a 50% hair cut. Are these signs of a healthy economic situation? A bit of common sense should be enough to answer this question, no need for a Phd.

For as long as debt level remains so high and employment levels so low, there is no hope for an improved economic situation. And add in the fact that the Chinese property market has started to implode, which will take down the Chinese economy the same way Real Estate took down the US economy, and we are in for another few years of poor economic performance.

The most accurate economic indicator is this one: if the situation of the middle class is getting better, it’s ok to get in the stock market. If the situation is getting worse for the middle class, it’s better to stay away from risky investments. Why the middle class? Because it is the backbone of a developed economy. The broader economy always moves along with the situation of your neighbors, family members, colleagues at work, etc.

If you want some real prospective economic analysis, I would highly recommend to read the Global Anticipation Bulletin, written by economists in Europe. What they forecast for the next 3-6 months is not as optimistic as what is predicted on this blog… I posted the same link three months ago. Garth commented something like: “fear mongers”. It turns out they have been right in their predictions…

The Europe disaster is at an end? Seriously, Garth? The EU is now begging China for more bailout money (good luck with that). Italy’s bond yields are rocketing up despite the ECB’s best efforts, in large part because CDSs have suddenly been proven worthless due of the “voluntary” nature of the Greek default. Talking of which, despite the announcements, all Greek debt holders are nowhere near agreeing to that 50% haircut. The unelected leaders in Brussels now intend to seriously impinge on the sovereign affairs of a number of member countries, which will almost certainly cause yet more civil unrest. The euro is a failed currency. Oh, and there ain’t a scrap of serious economic growth in sight. Yeah, all peaches and cream over there. Wow.

“Of course, the world’s still awash in debt, the Mideast’s as stable as Charlie Sheen and the American middle class has a big self-inflicted wound. Problems abound and the gulf between those who have money and the rest of us is now an ocean.” Come back when you learn to read. — Garth

Please read Sandy Garossino: Vancouver, we’ve got a housing problem. Sandy is running as an independent candidate for Vancouver city council because she says we need some straight talk about tough issues. As one example, if we do not act now to interrupt the trend-line of unaffordabale housing costs, we stand to lose an entire generation as our best and brightest decamp for better opportunities elsewhere. They’ll take with them a future that might have been ours.
Vancouver, we’ve got a problem. The question is, do we have the will and courage to solve it?
Vancouver’s residential real estate has become a speculative commodity for global investors living outside Canada to the point that vancouver has become one of the least affordable cities on the planet. In comparison to median income, our housing costs are almost 56% higher than New York’s, and 32 percent higher than London’s. Excessive global capital speculation that is unrelated to the local economy drives atificially induced values throughout the market, which pushes rental costs out of reach.
Sandy says Vancouver is long overdue for a cold hard look at the extent and broader economic and social impact of global speculation on Vancouver’s housing market.
Vancouverites are desperate for government to put the people’s interests first and get to the heart of housing affordability. Increasing housing supply is on everyone’s agenda, but this strategy is empty if global speculative demand is unlimited.
What percentage of Vancouver residential sales are purchased wholly as investment instruments for speculators with no ties to Canada, never to be occupied or even visited, while vancouver residents struggle to put a roof over their heads? What is our vulnerability to interest rate fluctuations or shifts in monetary policies in distant capitals?
How much worse can this problem get?
We have no idea.
I vote for Sandy Garossino.
Evelin

It takes your food seven seconds to get from your mouth to your stomach.

One human hair can support 3kg (6.6 lb).

The average man’s penis is three times the length of his thumb.

Human thighbones are stronger than concrete.

A woman’s heart beats faster than a man’s.

There are about one trillion bacteria on each of your feet.

Women blink twice as often as men.

The average person’s skin weighs twice as much as the brain.

Your body uses 300 muscles to balance itself when you are standing still.

If saliva cannot dissolve something, you cannot taste it.

Women reading this will be finished now.

Men are still busy checking their thumbs.
*
#13 Onemorething — “Watch for a trigger of events such as the latest rioting . . .” — Well said.

It may not be the rioting, but it will be something inconsequential (at least sheeple will think that way) which starts the snowball rolling. Here’s one.

Curious that a few large snow storms on the east, and Fukushima’s garbage on the west have hemmed us in. Oh well, shit and HAARP happens!
*19:01 clip Yet again, proof the cycle is shifting from west to east; EU bailout Public relations BS; China All China has to do is cash in its IOUs from the US, then bail the EU out. Seems like China is holding all the cards, and the US doesn’t like it at all; Spain Wacky, to say the least; NWO’s new economic order (it’s dysfunctional, but they don’t know that yet); Soros is the one who could tell Obomba to hand the reins to China (he likes their economics); Italy The clowns should run the EU; Caligula in action.

2:51 clip It’s dee Monster Mash! but 7:05 clip If you prefer the blues, try this; Fukushima and the west coast, Fukushima The west is glossing over its economies’ failings, and TEPCO is doing the same at Fukushima; Argy-Bargy Always nice to see politicos get on well; 2:45 clip “Maurice Strong? Involved in the Flight 253 Christmas Underwear Ordeal.” FF, to scare sheeples.

EUSSR Further info. Along with the USSA, the planet seems headed left; Stifling Free Speech ‘Rogue’ web sites may be removed; CC Hiding the truth to push one’s own agenda? Libya A lot of Libyans supported and liked Gadaafi, the west didn’t; Syria The west can avoid Syria by having an extra-large ‘quake; Not Pink Floyd’s laser show, but still pretty good, and Space Collisions If the US were still exploring space, NASA could be relied upon.

Garth, the more you write about the stock market and about economics in general, the less sense you make.
Nobody in their right mind can believe that debt issues can be resolved by adding even more debt (the way it now happens in Europe), so the period of pain is nothing but delayed and/or prolonged.
What happens if Italy or Portugal or Spain want their own debt cut in half doesn’t seem to concern you a bit. The fact that Greece is an economic dwarf compared to Italy or Spain but still it was able to cause to much anguish on the markets seems of even less significance to you…
All’s well on the Western front. La vie en rose…

As for the VIX, the correlation between the S&P 500 and the VIX is inverse but imperfectly so. The lower low in the summer of 2008, when the index nearly dipped to 1200, came with a lower VIX in the upper 20s. More significantly, the unprecedented surges in the VIX above 80 in late 2008 predated the actual index low by over three months.
So I am not sure how you think that you can use the
VIX in any practical way and why you even brought it up in your post. It doesn’t prove anything really.

#33, condo sucker, $18.75 for XIU is below the levels it was 5 years ago, despite the Canadian economy growing significantly, and oil prices back to record levels on an average basis. $18.75 is a mere pittance for XIU shares given the current P/E of the market.

#8 Euro Girl on 10.30.11 at 6:52 pm
Garth, you made my day (or rather, night) I am overseas and is past midnight here, time to go beddy by.Tonight, to my delight you were early to post and now I could go to sleep a satisfied woman.
Thanks and goodnight!
====================================

Garth, your ARE the king! Not even Chuck Norris can satisfy a woman that is an ocean away! LOL

Another point, you mentioned earlier that you post and people call you an idiot….. I hope you do as I do when that happens to me…….

“How many times do I need to write about a carefully balanced portfolio of government, corporate bonds and real return bonds, trusts, preferreds, sector and index exchange-traded funds? Why do so many people on this blog think in black-and-white?”
====================================

Good Morning
It was a very enlightening post. How many of you remember the early 80’s when you could not get work.

One thing for sure that things will be better 5 years from now and 20 years from now. Yes there will be bumps and crisis, but that is part of life. Look back 30 years, are we better off now? Look back to 15 years when Canada was worst then Greece. Do you remember being called banana republic?

We took the haircut and is Canada better off now?
I am not a Doomer, I do own gold for the same reason I buy insurance, just in case.
I will admit I am overly timid in the stocks, I watch my TFA go from $18,000 down to $15,000 and then back to $17,000 and still hanging in.
My problem is picking the next innovation. And strangely enough we have not even heard of it yet.
My point the next 30 years of innovation will make the last 30 look like we stood still.
Cheers and smile because you worry to much.

Sitting in Brazil right now, one of the few countries I have investments. I am seeing an incredible rise of the middle class where earlier there were only two classes (poor or rich). This place is a gold mine…..if you know what you are doing……

Oh Garth, for the first time in 3 years I’m going have to give you a FAIL grade on this one.

“Above all, it’s more evidence most people do the wrong thing almost all the time.”

It’s amazing to think those living 5500km+ away from Europe can say “Oh, the problem is fixed over there”. Well, I live 0km away from the EU issue and let me tell you, it’s NOT FIXED, in fact, it’s just “kicking the can down the road”.

Anyone who invests with foreign knowledge of what is happening in Europe is a fool. Rather, they should buy a ticket to Europe and see it for themselves, first hand.

“Don’t go judging the problems in the house down the street when you don’t know what’s actually happening in that house”

BTW – I own no metal, own less than 0.25% in stocks and have 99.75% cash.

World is indeed awash in debt. And it is at least equally awash in savings since, one man’s debt is another man’s savings
——–
You keep on repeating this argument but always fail to push it a little farther.

The US treasury might have issued trillions in bonds and, yes, these are in pension funds as savings but you never seem to mention that despite having trillions in savings, these still aren’t large enough to fully fund pensions and cover all promises that have been made.

Brilliant marketing on that For Sale sign. If you’re declaring your neighbour is an a$$hole – then why would I buy your house?
——–
Maybe he does not want to sell. Maybe he does not care how much his house is worth and he is just doing it to piss off his neighbor who is titally obsessed with the value of his home. LOL!

Rubbish. There will be no dominoes, no matter how many different names you post under. — Garth
——
What’s your definition of a domino? Of course there will be repercussions. You think Ireland has seen the worst? Italy?

#12 detached house within walking distance to subway and quaint shops = uber expensive, same reason why Manhattan property never collapsed. One generation ago most communities were designed around the central Toronto model until the invention of the suburban subdivision. The “emperor’s new clothes thingie” is that huge numbers of people hate the suburbs – particularly 20 somethings who grew up there. There is now a severe shortage of this walkable lifestyle option so I would doubt that centrally located detached property in Toronto will lose much value – not saying the same for the vast amount of property not in that location or the huge swaths of itty-bitty condos.

The Vix has not plunged before as it did last week. Look it up. This blog is bullish on saving people from themselves. — Garth
——–
Sometimes I wonder if it’s a test…. you look for an argument and wait to see if those who bite are those you expected.

Anyway, if you look at the VIX from 97 to 03, you will see the same pattern up and down as we have seen.
Not what I said. The decline last week was unprecedented. — Garth

Not what I said. The decline last week was unprecedented. — Garth
——-
Take a look at the chart. We saw a lot of those zig-zags between 97 and 03. I find the VIX only serves to confirm what I am seeing with my own 2 eyes.

Then use the eyes for research. The decline last week was unparalleled. I already posted source material. — Garth

The TMX Group board is unanimously recommending that TMX Group shareholders accept and tender their shares to the Maple offer, and vote in favour of the second-step arrangement transaction. In making its determinations, the TMX Group board took into account a number of factors, including the value of the transaction to TMX Group shareholders as well as the expected benefits of the Maple transaction to TMX Group and Canadian capital markets participants and other stakeholders. These include:

Shareholder value — The current offer price and structure of the Maple offer, which has been preserved, reflects the enhanced consideration, payable in cash and Maple common shares, offered by Maple on June 22, 2011.
Opportunity to create an integrated exchange and clearing group — The Maple transaction affords a unique opportunity to create an integrated group that can provide trading, clearing, settlement and depository services for a broad array of financial instruments. CDS’s clearing, settlement and custodial business will further diversify TMX Group’s business and generate growth opportunities.
Benefits to capital markets participants from CDS integration — The integration of CDS into TMX Group is expected over time to generate capital efficiencies and cost savings that will benefit all users. Enhanced cross-margining capabilities are also expected to drive value to participants. In addition, TMX Group’s position to provide OTC clearing solutions to Canadian capital markets will be further enhanced.
Stronger position to pursue growth and international acquisitions — The completion of the Maple transaction on the terms proposed, including the proposed acquisition of Alpha and CDS, will augment the international competitiveness of the combined company and position it to grow in an increasingly competitive and consolidating global exchange industry. In addition, the combined company will have enhanced scope and scale through which to more effectively pursue international acquisitions and joint ventures.

Your comment Garth, in number 34, about a 40/60 fixed income to growth portfolio returning 5% a year between 2008 to 2010 will not be repeated between between 2011 and 2014, should another crisis(not saying it will ) of similar magnitude hit.

Why ?

Because you will not get the same lift from the fixed income portion, as rates cannot drop to the same degree as they did from 2008 to 2010.

A rush to safety and corresponding gains from bonds, which I am sure you will mention in defense , will not be enough to repeat bond performance
Of course it will. Besides, 2008-9 will not be repeated. I have already explained why. — Garth

The very act of creating trillions of currency units from nothing IS inflation, and it IS being done on a mega scale
———-
No it isn’t. If you are printing money and people are producing a good or service which is useful, then it is ok.

If you print money and it’s all used to buy gold and produces nothing, then you’ve got a huge problem.

If one person on a street sells their house for 20% less than your perceived home value…this means the average price decreases. Any seller can pull a number out of the sky, it’s the market that’s decides the price.

And if you’re living a negative cash flow every month, most people WILL sell at a loss to rid themselves of continual accumulation of debt. At that moment, what price you thought your house was worth, means nothing.

There is very little new, low rise product available coming down the pipeline. Blame the greenbelt restriction for that. Lots of condos however.

According to my very well( and wealthy) connections in the building industry, prepare for prices in the toniest areas of the 905 (Richmond Hill, Thornhill ) for low rise to rise substantially. Condos another story altogether.

The madness for RE continues much to my frustration.

“Stocks still for suckers” was the comment made over the weekend by an individual with a 12 car, underground garage in his home with no empty spaces.

Poeplenomics,
Perfect name for today’s comment section. Making mistakes is part of being human I guess. Can’t say to much though since I blasted you saying to accumulate stocks in the winter of 09.
Thanks though again for calling this October rallying at the beginning of it. I made money if nobody else did, selling bonds for equities on Oct 7th.

==============
…”Transparency and exchange of information on request are now an accepted requirement for any jurisdiction that wishes to provide financial services in our globalised world. Many of the jurisdictions represented here have had to adapt. Liechtenstein, for example, has made major changes and adopted a “white money” strategy. It has made a commitment that no undeclared money will remain in Liechtenstein. The achieve this, Liechtenstein has implemented new laws to ensure access to information and enter into EOI arrangements for the first time.

There are many other examples of jurisdictions – Belgium, Malaysia, Luxembourg and the Philippines, for example – which have taken domestic action to improve access to information. Of the 59 jurisdictions reviewed to date, 32 have amended their legislation or regulations to bring them into line with the international standards. I appreciate the transition may be difficult for some of you but it is the only way to survive in a world where hiding money for tax purposes is no longer acceptable.

The battle for fairer tax systems is being won on two fronts: jurisdictions are amending their domestic laws. As the OECD forecast, they are gaining from the initiative – centres such as Jersey and the Cayman Islands are prospering. And the expanding network of information exchange agreements is yielding results. Over the past 2 years, the number of requests under these agreements has gone from almost zero to thousands. It is now no longer possible to hide assets or income without risking detection.

Your message is also getting through to financial institutions. Banks are changing their attitude to offshore evasion. Those that counted on bank secrecy to gain a competitive edge are now focusing on the services they provide.

How can we measure our impact? Our recent survey of 20 countries shows that more than 100,000 taxpayers have revealed previously undetected offshore assets. This has yielded almost EUR 14billion in additional tax revenues so far. And that’s just in the past two years. We can expect to see multiples of this 14 billion collected over the years to come.

As cash-strapped governments look to pay down their deficits, this will make a substantial contribution to fiscal consolidation. Just as important – most of the additional revenue has been secured from citizens attempting to evade taxes. At a time when many governments are forced to ask their citizens to accept higher taxes and reduced public services, everyone must pay their fair share….”http://www.oecd.org/document/48/0,3746,en_21571361_44315115_48962864_1_1_1_1,00.html

The Baltic Dry Index is only relevant when the world trade remains the same. This is no longer the case. Due to the high cost of transportation (oil) more goods are manufactured locally. More and more trades will go West to East.
Garth, you’ve awaken the doomers again.

“So the crisis is over, at least until the next one. Volatility won’t end, but August sure did. So did fears of a US recession, as consumer spending and business investment jump. So did the commodities rout, as demand swells and prices recover. So did war, as operations wind down in both Iraq and Libya. So did the Euro disaster, as bondholders take a haircut and the bailout pot grows.”

Sigh. My argument is against the proposition that there are more savings then debts as stated in #38. There seems to be a number of people here that don’t understand how zleveraged the financial system is. Furthermore when we add in derivatives and other financial instruments and forms of insurance the worlds debt obligations vastly out number our savings.

I think it is dangerous to believe that somewhere there is a saver that is backing up all these debts and then some. The truth is that we have collectively been mismanging debt for 30 years and seriously reckless the past 10.

The point is that until we have a global restructuring of debt (not default) we will remain at riak to financial shocks and more VIX activity.

I live between two illegal student rooming houses in West Hamilton. Most of the street is illegal now. I need a custom sign to attract the slumlords who will buy my home. They prefer streets where most of the owners are a—— “investors” like themselves and a sign like that would reassure them and allow me to exit next spring.

Both of you must be pretty bored… I’m surprised you responded to the Inv Fiend’s nonsense. In his false scenario, banks would not turn a profit, they simply receive and hand out money from the goodness of their hearts. As a service to humanity. What he is engaging n is mind control… he understands that the greater the number of times he can post the SAME THING over and over again, the more chance it has of infecting as many minds as possible. LFMAO… but it’s no laughing matter.

66 and 97 Junius – then why didn’t you say what you now claim you meant at the start? If we use your original
statement, we could destroy all the savings but still have
debt. Who is this owed to?

Also, Leverage changes nothing as the borrowed money
becomes somebodys savings somewhere down the line.
The principle we have been explaining would also work
for derivatives. What is a loss for some would be a gain
for others if the contractual obligation can be met. If it
can’t both the debt and savings are destroyed.

Who said debts are backed by savings? It is equally logical that it’s the other way around.

In Aug/Sep my portfolio was down almost 12%, I was crapping my pants. Sat out on a rig for 52 days in a row trying to make back the losses through hard work. At the time I thought the losses were permanent, with more to come. I almost phoned my advisor and cashed out my entire portfolio.

Now my portfolio is only down 3%, and I wonder where my precious Canadian summer went. Fear sucks, makes people (me) do stupid things. Hopefully lesson learned, but fear is one powerful emotion.

…And there was no damn way central bankers were going to allow anything other than a global fix to happen.

Central banking is evil. The world is discovering this fact, at a astonishing rate.

Right. Let’s go back to protectionism, uncoordinated fiscal and monetary policies and the kind of epic regional financial events that guarantee conflict and destroy quality of life. Enough of this evil. — Garth

If you want another interesting topic you should look into the student loan bubble.

I’ve been in the States for a couple of years now. The housing bubble has happened and is running its course but now the latest thing for money to pump into is student loans.

Lots of students taking on $100k+ loans backed by the government. You can’t declare bankruptcy on them. Like housing easy credit = high tuition prices. The similarities to the housing bubble are striking.

Since the OWS started I’ve really seen this topic appear a lot in the news and websites. It won’t end well but should be interesting to watch.

Garth who has got to you…. Does Flaheraty have some compromising photos of you?…

I have been following this blog for about 3 years now, and it seems that recently you have toned down your apocalyptic predictions…

Yes Canada did not immediatly follow the US back in 2008, however we have always maintained some form of lag in time comparing the US housing market to the Canadian…

Add the fact that Canadians seem to accept what ever the media/Real Estate agents tell them.

Also consider that the Canadian Bank’s completely securitized their entire conventional mortgage portfolio, this has removed any risk of potential real estate losses completely from the Banks to the Tax payers of Canada.

So is there any wonder as to why our Government is continually selling us on the lack of a real estate bubble here in Canada when they are in the absolute worse position if/when the bubble bursts.

But ignorance is bliss, deny, deny, deny!!!

But Garth please don’t bail on us now…

The future will be quite apocalyptic for indebted homeowners. For liquid investors, quite the opposite. Why do I have to keep making this distinction? — Garth

“My point the next 30 years of innovation will make the last 30 look like we stood still.”

We have stood still for the past 30 years. Seriously, what major innovations has mankind created in the past 3 decades? I can think of 2: Cell phones and the Internet.

40 years ago, we had supersonic commercial flight across the oceans. Man was playing golf on the moon. Computers were invented, then shrank from the size of a chest freezer to a shoe box. Since then, we’ve pretty much just been treading water. Making things faster and smaller, but nothing really “new.” It’s kind of pathetic, actually, when you think about it. All these great minds, and the best thing we can come up to brag about is Twitter?

“Enough of this evil.” (Garth) That’s all Garth needed to write, and for the rest of us to understand, in the first instance; a few simple wise words was all.

These days, honest balanced bookkeeping at the international level is not going to happen for us doomers who believe in proper accounting, tidy bottom lines and so on.

What Garth’s trying to tell all of us boys and girls is that what’s normal is what the powerful self interests can cobble together (which are at times our self-same interests!), especially late in their day, and some “resolution” that won’t cast them into the dust-bin of history.

The elites want their money, too. They ALSO don’t want to be ingredients in a future OWS’s “cannibal stew” pot luck “love-in” supper for the food stamps masses in the suburbs of Long Island New York (don’t forget the rosemary and chilli peppers!).

The system, we must hope, will continue to stumble and bumble and maybe even charge headlong to an actual success at some juncture way out there. The VIX will be all over the map to the point of some form of irrelevance in freaking investors’ minds.

And China will learn to deal with the wretches of North America and Europe, as it NOW MUST fight new imperialist rear guard actions in east and central Africa as the Yanks/Euros send in their special forces to try and dull Chinese economic interests, by conducting “phoney local conflicts” to keep American/European influence unmistakeably noticed there (read Eric Margolis’ latest).

Nothing is perfect in Bookkeeping Land anymore folks. Maybe we took the Marshall Plan and formation of the United Nations as signs of future economic rectitude and political stability.

Didn’t happen.

But it’s STILL better than rampant tribalism, trade protectionism, and overall tyranny; aka: the 18th Century in North America and Europe.

Neighbour’s son & wife finally sold their tiny home. He bought it when he was single & now has 2 children. It had been on the market twice. They’re looking to buy not far from us. Both have secure & well paying jobs.

House behind our neighbour has been vacant since late spring. Believe he was a university student and his banker dad bought it while he was studying here. He tried to sell it on his own & then went with an agent in August. Notice the asking price hasn’t budged. Second part of municipal taxes were due today & with colder temperatures you’ve got to maintain some heat in the house. Patio set is still out on the back deck, tho an older man is mowing the lawn.

The RE agent sold all the homes on the new end of our st. ($500K range), but the homes she’s selling now are considerably worth less. We’re quite certain she’s the one who complained to our municipality about our double tempo in our driveway. (DH always removed it in the spring.) Nobody on our st. complained about it. It was only when she started selling those $500K houses. We were not aware there was even a bylaw against them. They are very common in the Mtl. burbs.

Lots of students taking on $100k+ loans backed by the government. You can’t declare bankruptcy on them. Like housing easy credit = high tuition prices. The similarities to the housing bubble are striking
—–
In the US, a lot of people refied and paif off their loans.

And there was no damn way central bankers were going to allow anything other than a global fix to happen.

Garth 200 years ago Thomas Jefferson warned us about the evil of central bank. He predicted exactly the slavery of Americans to central bankers that exists today. It may be good to remember those idea from the past, before buying real estate today.

DH told me that one of his IT techs decided to declare bankruptcy. He and his ex sold their home when they divorced. He bought a mobile, his girlfriend and her 2 children moved in with him. She works. He’s in his 40’s. Now one of his 2 children wants to move in with them. Understand he’s so far in credit card debt, etc. that he believes it’s the only way to get out of debt. Apparently he gets to keep the mobile and his car.

Roaming around the site, it notes that $1.9 Billion was lent out in 2006-2007. Today’s numbers would surely be greater. You can do the math. Ten percent university defaults, 17% college defaults and whopping 29% at private institutions, whatever they are.

All students are eligible to apply including Permanent Residents. University and college enrollments are increasing at 5% each and every year.

Brock and McMaster Universities will have a combined 50,000 students this year and the are 40 miles (<70km) apart. Hamilton and St. Catharines will be awash in rocket scientists ready to take on the global economy. It is all so exciting.

There’s good and bad to central banking. Feel free to add to the lists below.

GOOD:
• One national currency (as opposed to private/regional currencies). This helps facilitate commerce and make trade more efficient.

• Centralized, national regulation of banking system

• Greater overall stability of banking system (arguable)

BAD:
• Monopoly control of money issuance (no competition; the people cannot choose an alternative with the same full benefits of legal tender)

• Centralized, monopoly control of banking system that forces banks to make a market for government debt. If a bank chooses not to join the “cartel” they also lose out on some benefits (membership has its privileges).

• Governments use central banking to expand the money supply in a way that gives government first access to new money and therefore the ability to spend money before it gets devalued by inflation. It’s also a very effective way to confiscate wealth (a covert tax).

One of the Fed’s mandates is price stability. But prices were far more stable BEFORE the Fed was created. Prices, overall, remained pretty stable throughout the 19th century (i.e. no overall inflation, except during periods like the Civil War). After the Fed, the US dollar has been devalued to almost nothing of its original value. Correlation is not causation and there is much more to this story, but it’s worth looking into the correlations.

Your comment on the development industry in the GTA is interesting. Although these guys must be quite wealthy, am I correct to say that the bulk of the wealth & control is concentrated amongst a handful of families? I am referring to the families that started the large development companies and have now set up their children with large home building companies. What are your thoughts?

This is the true state of affairs, not the sanguine outlook Garth is presenting. Numerous individuals have pointed this out to him and yet he sees us all as end of days whackos instead of individuals who are trying to see the situation for what it really is.

The situation will be contained. I have said previously that partial defaults are already priced in by markets. Boundless contagion is not, since it will not occur. — Garth

As unofficial King of Wingnuts on this blog… I do have a comment on the “tinfoil” insults being thrown around by our humble host…

It’s actually not tin, but aluminum. This fairly abundant elemental metal is non-magnetic and insulates against electromagnetic fields. Mind control which is directly wired to your brains is done in various frequencies that would be repelled by the aluminum one wears on their head. Titanium is in the same family, and has the same basic properties but is more expensive and less abundant. Incidentally, Alien spacecraft is probably some exotic combination of one of these elements with other unknown materials, because of the lack of interaction with electromagnetic fields, and also because they are light. But that’s neither here nor there.

Try the Baltic Dry Index for a better view as this is directly showing the consumer driven economy which is all the Western world relies on for GDP, employment and just about every other facit of life we live today!

“The average price of contracts on the Chicago Board Options Exchange Volatility Index for March through June plunged 8.7 percent in the past two days, the biggest drop on record, according to data compiled by Bloomberg.” Garth

Garth, I think you need to do a little more research on this stat. The “greatest drop on record” is for but one aspect of VIX (mid-term contracts from March to May, I believe). And, the “on record” part is since they started trading these securities in . . . July.

There are bigger historical drops for the main VIX index than we’ve witnessed in the past week. It is very interesting to see how a press release gets slightly mutated with each source though. We all have a tendency to see what we want to see.

Closer. Assets are a much broader category than savings as they would include tangible property and intangibles. However you are still trying to find an equilibrium where one does not exist.

Look at Government debt. While gov’ts may issue bonds the strength of the debt is entirely based on the future ability to meet those bond obligations. They are backed by Assets – the ability to tax from future economic revenue.

However look at Greek bonds or corporate bonds from Lehman brothers and others. If the revenue stream – or the Asset – is not sound then there is a default.

The problem in the world financial system right now is that there is simply too much debt and potentially too much bad debt. In order to meet the debt obligations we will need stellar economic performance and that is not going to happen. There is also the problem that austerity measures to pay back debt may sap the potential for recovery as happened in the 1930s.

The point is to assume that for every debt obligation there is an equivalent amount of capital asset or savings on call to back it up is simply not true. We have a highly leveraged financial system where only a fraction of savings and real assets hold the system afloat.

The bubble in education is very similar to the housing bubble. It is very illustrative of what happens when you make cheap credit available to people.

In the case of education the cost of programs has sky rocketed the past few decades. In particular, the private institutions offering industry specific or secondary degrees.

What has happened is that the tuition and other costs have essentially risen to what can be borrowed and not the value of the education.

Several years ago I did an evening class at one such institution. It was kind of fun and kept me fresh on my profession. However it was appalling to see what was happening.

Upon examination it was clear that the program was specifically designed around a 2 year window that maximized the amount of money the students could borrow. The students were graduating with huge loans and in the end few found jobs in the area of study. All they had was debt.

We can say that this is their fault but there was always an attitude or belief that if they could access student loans then the investment had to be worth it. Otherwise, why would the gov’t guarantee it?

Not a whole lot different than the housing bubble. Cheap debt benefits the seller more than the buyer. The buyer just feels wealthy because of the amount of money they have access to. Until reality arrives.

Re: Post #29 “There will never again be an asset-backed currency in a major western country. Next time tell us something useful. — Garth”

Excuse my ignorance but can someone define “asset-backed currency? Love reading all the posts and constantly learn alot thanks to Garth and the blog dawgs!

Got an update on IG, after reading Garths teaching, were kicking them to the road. What a joke!

Long ago when people traded rocks, shells and sheep their ‘money’ was barter. When it was too much trouble to carry a few sheep when you went shopping, representational money evolved, whereby a piece of paper (or a rock with writing on it) represented an asset (like a sheep). In the barbarous old days gold was often used as the asset, and the state issued money equal to the amount of gold it held. Today we have currency which is backed not by assets but the power of sovereign governments to tax. It’s called fiat currency, and never again will assets back money in a major democracy. Despite what the nutbars on this blog think. — Garth

The point is to assume that for every debt obligation there is an equivalent amount of capital asset or savings on call to back it up is simply not true.

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I never said anything about assets backing the repayment of debt. Savings are what was loaned out as debt, they don’t back the debt.

What I am saying is that when money is loaned, the person who is owed the money considers that his savings, his asset. He may never get it but until written off it is his asset.

Stupid fractional reserve alarmists forget that when a loan is made and the money is paid to (say) a car dealer and then the car dealer deposits that money, it is now a deposit, an asset of the car dealer, and yes the bank can lend it out again.

While some of you may be in debt and have negative net worths, many of us have large positive net worths.

Assets of this world FAR exceed debt. The World in total obviously has a positive net worth.

But yes some people have too much debt and it will be written off…and some savings will evaporate at that time.

“The VIX indicates expectations of volatility as an index optionon the CBOE. It is therefore not a lagging indicator.”

From the article quoted above: “VIX has received the same criticism as many other volatility forecasting models: Despite its sophisticated composition, the predictive power of VIX is similar to that of plain-vanilla measures, such as simple past volatility.”
(…)”practitioners and portfolio managers seem to completely ignore or dismiss volatility forecasting models”.

I stand by what I say. Despite its claims, the VIX is a lagging indicator. Any math based indicator that uses past price data to predict future price movements is inherently lagging. That’s why, as the article says, most practitioners and portfolio managers ignore it. For those interested in how to calculate it, here is the formula (http://www.ehow.com/how-does_5169330_vix-calculated_.html).

“Everything you said after that is moot.”

The bailout of Dexia a moot point?
– Trading in Dexia shares, which had been suspended, resumed on Monday afternoon. The price fell by a third before recovering slightly to close down 22%. (BBC)
– [The Bank] had to be bailed out in 2008, with the Belgian, French and Luxembourg governments putting in 6.4bn euros to keep it afloat. (BBC)
– The government of Belgium is going to purchase the bank’s unit in Belgium for $5.4 billion. (Business Today)
– Dexia also secured state guarantees of up to 90bn euros to secure borrowing over the next 10 years. Belgium will provide 60.5% of these guarantees, France 36.5% and Luxembourg 3% (BBC)
– Dexia has global credit risk exposure of $700 billion – more than twice Greece’s GDP (Money News)

Does this reflect a healthy banking system? Since it is interconnected, what happens in Europe will have consequences in North America and the rest of the world.

The Greece bailout a moot point? I wonder what the Greek bondholders think about it. And how about the Greek population that is currently being strangulated by austerity measures? Does this reflect a healthy economy?

The risk of the Chinese property bubble on the rest of the economy a moot point?

“Western exporting countries like Germany, which partly owe their gradual recovery from the global crisis to orders from China, are also reminded of the risks in East Asia. “You’re starting to see that collapse in property and it’s going to hit the banking system,” Kenneth Rogoff, a Harvard professor and former chief economist at the International Monetary Fund, warned recently. “It’s a bubble.””
(http://www.spiegel.de/international/world/0,1518,709688,00.html)

What would somebody with half a brain and a bit of common sense would make out of all the above?
– The banking sector is still very fragile as Dexia shows. If one major bank fails, it’s 2008 all over again, this time with a lot less room for governments to intervene. Conclusion: stay away from banks and financial companies stocks, they are toxic, no matter what is said on this blog.
– Unemployment and economic situation in Europe and US is still very bad and there is no sign of a quick recovery. The market will not provide fat returns as it used to pre-crisis any time soon. Companies need customers to grow, and they are simply not there yet.
– When China implodes, the demand for commodities will stumble. That will really sucks for commodity exporting countries (Canada, Australia…) and also for commodity related stocks, as well as precious metals – stay away from them for the time being.

Conclusion: it’s time to play safe with your money and wait for better times.

We are living in strange and interesting times, friends! And many times the word apocalypse comes up in regards to “the end of the world” etc. But as you can see above the REAL meaning of the word is to “uncover,” a “revelation,” to REVEAL.

Perhaps it is time to look at these amazing times that we are living in with a different perspective, one of inquiry and expectation.

Could it be that the “end of the world” that is so much talked about is but an end to the ignorance and darkness that for too long mankind has stumbled about in? Could this be a time of awakening, a time of lifting the veil that for too long has blinded us to the workings and wonders of the universe and its creator?

The internet has provided a powerful new way to exchange these sometimes revolutionary and yes, even sometimes wacky new ideas. In the global “conversation” that has been afforded to us, communication has been enabled at a speed that was never dreamed possible. It is my personal belief that it is important to focus on the positive aspects of knowledge and life. It is also my viewpoint that it is important to know the other or darker side of the stream of things in order to strike the balance that is wholeness. One cannot hide away from those things that do not agree with personal belief systems. The time of standing with our heads in the sand is over.

It is important to “Know Thyself,” it is also important to “Know Thine Enemy.” These are one and the same.

Every dollar borrowed for a mortgage, a credit card or a line of credit is backed up by the deposits (savings) of someone (or the equity and debt of a bank which also represent someone’s savings).

Rather than backed by, I should have said funded by. Banks loan out the deposits. The loans may or may not be backed by anything. They are not backed by the savings deposits, those belong to others not the borrower.

In this sense I meant the bank has the funds to loan, the deposits provide those funds. I never menat to say the savings back the re-payment of the loan. If anything they back the making of the loans, not their repayment.

I don’t see why some people want to base a currency on gold, or silver or some other hunk of metal. Correction: I understand why, but I don’t agree with it.

First of all, even under a commodity/gold money standard, the value of a currency is still ultimately derived from the productivity of the currency zone in question. Everything comes from productivity (including gold and taxes). Actually, what really matters is energy/work. So, if you can argue that gold is really just a portable, tradable form of stored energy, then I can perhaps see the case.

Second, and more importantly, when commodity/gold money becomes inconvenient, such as when the government wants to expand the money supply faster than they can acquire the gold to back it up, governments just go to fiat money anyway.

Gold money died a slow but sputtering, multi-stage death beginning with Britain in 1931 (I think) and culminating with the US in 1971.

The main distinction between gold money and fiat is that fiat/debt money derives its value from future productivity, whereas gold money is (arguably) based on current productivity. This is supposed to check the growth in the money supply because you can only grow the money supply as fast as the economy, and thereby avoid things like housing bubbles, which are based on debt (future productivity).

But I won’t argue with history. Fiat money comes and goes. Gold has always been. We in the West may not think of gold as money, but others on this planet see it differently. There are some very smart people (some even almost as smart at Garth) who think there is a fair chance we return to some kind of gold standard some day, even if only for international settlements, as a part of some kind of new global currency.

JohnnyBravo… money has never been backed by anything. Ever. And I mean, never ever… It is the BELIEF that money is backed by something that keeps this charade going. There is no such thing as money. It doesn’t exist. What does, is mutual trust… between each other. That is also known as credit. Even barter, is a form of trust. Notches on a stick used to pass for money not too long ago, no joke, do you see the fallacy?

If you can cease your worship of this idol, you will see it for what it really is… nothing but illusion. Whatever form this illusion takes (gold, notches on a stick, fancy-coloured paper, canned tuna, black Ferrari), your real rulers will decide how much you can have. Because you let them.

The Knights Templar began our modern credit banking horniness over a millennium ago, and it has helped us to manufacture things a lot faster, and concentrate wealth (read: control) into fewer hands. Is this progress?

Let me begin by saying that my two strongest traits are common sense and logical thinking. It seems that most lack these traits. I was at my gym and had a conversation with the guy that works at the front desk, what said shocked me. He said he and his wife were looking to buy a home. He said the bank would qualify them if they use his wife’s grandmothers home as equity for the loan. Now to be honest I think the bank is asking for her grandparents to co-sign the loan. I asked a simple what happens if you can’t pay the mortgage? His face went stupid. I continued by saying obviously you can’t afford the mortgage you requested or the bank wouldn’t ask for a co-signer. I think he got angry, but better angry at me than jumping off a bridge when his wife’s grandparents are homeless. I ended by telling him to read this blog. I think it fell on deaf ears.

Some party members then went to the “National Citizens Coalition” to talk their president, Stephen Harper, into running for the job. He agreed, won, and went on to engineer the takeover of Canada’s Tories.

To this day, Harper refuses to reveal who paid for his expensive leadership run.

“- The banking sector is still very fragile as Dexia shows. If one major bank fails, it’s 2008 all over again, this time with a lot less room for governments to intervene. Conclusion: stay away from banks and financial companies stocks, they are toxic, no matter what is said on this blog.”

I should have read the news before writing my previous message. Today, it’s MF Global that files for Bankruptcy…
“MF Global, a trader in commodities and derivatives brought down by bad bets on Europe, filed for bankruptcy protection on Monday, leaving behind more than $2 billion in debt to some of Wall Street’s biggest players.”

Seriously, did Nikola Tesla need central banking to invent AC electrical transmission? Did Steve Jobs need the Federal Reserve to patent the iPhone? Did the Nazis and IG Farben need central bankers to elucidate the wonders of organic chemistry? Did Livingstone need the creation of millions of dollars out of thin air to begin his rape of Africa? Did the Wright Brothers need fiat currency to launch into that same air? Does Maersk, Cosco and the like, need the IMF to maintain their monopoly over global shipping lanes? Does Walmart need Brussels to exploit a billion poor people via the port of Shenzhen?

Do I need to take a break from this pathetic blog? Oh wait, the answer to that one is yes…

You assume government spending more on lower tax brackets will boost the economy but you ignore the largely ineffectual $60+ billion in stimulus that had little measurable effect over the last few years. Rob Peter to pay Paul all you want but in that scenario is society any better off? Is it not better to emerge from a downturn carrying less debt?

#66 Thanks for the clarification. With regards to sovereign debt, as long as the Govt can boost GDP, they should be able to make the debt payment. This is the case for US and even Japan with their high debt to GDP ratios. The “sovereigns” in trouble are the currency users like Greece and other EU nations. They need to borrow to spend. The US, Canada, UK, Japan as currency issuers spend first and then they drain money through taxes and borrow the deficit (even though they do not actually need to do this).

The debt is not the issue, rather Govts should focus on jobs and raising GDP (to reduce debt to GDP ratios).

You are very right about the private debt bubble in Canada. When it bursts, basically everything that Garth has outlined will happen. Households really have to watch their debt levels.

#98 The moral hazard issue takes a number of options off the table. Should the US Govt ie. taxpayer bail out the homeowners with underwater mortgages – actually McCain was going to do just that if he became President. Here in Canada, the issue is still unemployment – about 2 million jobless, many of them long-term unemployed. We can wait for the private sector to hire but there isn’t enough money in the system.

Only the fed Govt creates money through spending. The private sector, banks, individuals, farmers, provinces, cities are all currency users. If we don’t have enough, we borrow, then spend. When the fed Govt doesn’t have enough, they spend and then tax and then borrow. The Govt’s role is critical. If they spend more, or tax less, the economy will improve. People will spend, jobs created, businesses invest because there would be more money in the economy and hopefully directed at the jobless and at useful projects (not gazebos).

If the fed Govt spends less (this is what they are doing), there is NOT ENOUGH money in the system for job creation. The jobless remain jobless, household borrow for their spending, businesses do not invest and limit their new hires, the economy recovers but at a huge cost to the unemployed who are de-skilled and now form a new underclass.

There are choices here. For the record, I’m one of the 1% – I think Govt should spend more into the economy to get people out the tents and back to work. The money will percolate through the system and the 1% will earn more income, dividends, capital gains, etc.

You have no point, other than being wrong. My source material proved that. — Garth

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Alright Garth. So when the VIX is back above 35-40 in a couple weeks and it retraces the 20% decline then what? Bear Market again and panic? The credit market is a more reliable indicator than the VIX of the current macroeconomic environment, not stocks, not corporate profits. How’s Italy doing again Garth? Oh look the Dow down 230 points again on threat of contagion. Oh look the VIX is up 16% percent today. My source material proved that.

You can continue to think we are in a secular bull market and be wrong and I will continue to say we are in a secular bear market and be proven correct.
Nowhere did I say this is a secular bull. — Garth

#184looks like somebody's got a case of the Mondays :) on 10.31.11 at 4:10 pm

Our collective stupidity is predictable. Everyone is quivering thinking we’re in for a repeat of ’08 or worse. The Lehman collapse was due to collective stupidity of american & british politicians. The US mistakenly believed the brits would go along with any bailout proposal put forward, the brits proved obstinate & balked. A stupid decision by a few politicians resulted in the financial system entering a tail spin brought about by contagion of the Lehman collapse. We learn from our mistakes, a Lehman style event won’t be repeated ever again. That being said stupid people tend to make stupid decisions based on stupid ideas or beliefs. Many of these stupid people find their way into politics where their stupidity can do real damage. I’ve discovered stupidity is the key to peoplenomics. Investing boils down to correctly understanding the consequences of stupidity.

The true driver of economic growth is population. We now have over 7B people on the planet, demand isn’t going anywhere and neither is the world economy. There will be an even greater number of stupid people available to make stupid choices for other less stupid fools to take advantage of. Thats the human condition in a nutshell and its been that way since humans first walked upright. Travel back in time I guarantee you’ll find one caveman tricking another caveman out of a meal. We might smell nicer & dress a little better but at the end of the day our minds aren’t really that far away from the stoneage.

The Knights Templar began our modern credit banking horniness over a millennium ago, and it has helped us to manufacture things a lot faster, and concentrate wealth (read: control) into fewer hands. Is this progress?

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Gee, and I thought that beyond concentrating wealth that the credit system had helped to contribute to the creation of wealth and human comforts of all kind in vast amounts undreamed of even by Kings a 1000 years ago.

Earth now supports 7 billion of us, in exceeding comfort in the West and in comfort in most of the world excepting only those places that have not embraced credit, private propery, captalism, and the rule of law.

If you’re waiting for the debt problem to be ‘solved’ by everyone defaulting, good luck. — Garth

ohhh…i ‘m not waiting for everyone to default . just anouther bailout and waiting for blue chips to drop where it a good time to buy. i look for p/e ratios, ep. trading volume , moving averages and postive cashflow…
stuff like that. i’m not a novice . i just conservative

thanks for responding :)

P/Es on the S&P are 24% below the 10-year average, as I wrote. — Garth

You said, “The Lehman collapse was due to collective stupidity of american & british politicians.”

Really? It had nothing to do with how completely over leveraged and gorged Lehman’s was on bad deals and debt.

If you were referring to the deregulation of the banking industry by those politicians then I might agree with you. However failing to bail out Lehman’s was not a cause of their collapse. It is like calling a doctor who can’t save a dying patient a murderer. The doctor isn’t responsible for the illness just the inability to prolong life.

#183 Neo. Garth’s response ” nowhere did I say this was a secular bull”

I recall not to long ago Garth, that when I mentioned that we have been in a secular bear market for stocks this past ten years ( now going on 11, the lost decade) you you said that quote ” The secular bear argument is bull” unquote.

Which is it, bull or bear?

Neither. As I have stated, we should expect a lengthy range-bound market. — Garth

But the stimulus did have some impact. The unemployment rate fell. But the ratio of employed to population has not returned to pre-recession levels – basically this means about 400,000 jobless not counted in the official unemployment rate.

It may be the Govt’s objective to allow market forces to take us to a new equilibrium point that is below the potential GDP. Perhaps they believe this to be the more sustainable level for the economy to grow. But it’s at a great cost – the jobless are de-skilled; all of the opportunities lost as we wait 2 or even more years for the debt to deleverage.

Far better in my view to put a floor under the unemployed ie. new graduates and long term unemployed – do a jobs works and infrastructure programme: 200,000 people X $50,000 a job = $10 billion or 0.6% GDP. It’s easily doable.

Will your taxes go up? I hope that mine do – it would mean that I’m earning more money. Rob as much from me…at the top bracket, I’ll still have more take home pay.

Garth sez:
“So the crisis is over, at least until the next one. Volatility won’t end, but August sure did. So did the commodities rout, as demand swells and prices recover. So did the Euro disaster, as bondholders take a haircut and the bailout pot grows.”

You knew we were do for one or two of these days, after all the DOW had ripped 1560 points in 3 weeks.
I nailed it buying 3000 shares of EDZ on Friday and of course sold to soon today but still pocketed 4.5 G’s

Its real simple folks. There are but two basic human needs; food and shelter. Ultimately everything else is just frosting. We all agree that the costs of that first need, food, are rising and accept that they will continue to long into the foreseeable future. Whatever makes you think that the costs of that second, shelter, will not too?

Real estate, like the financial markets, is a long term hold.

And while discussing financials don’t they ultimately depend upon that second fundamental human need somewhere along the line? Aren’t those companies you invest in through the stock market directly or at least indirectly somehow liked to the real estate markets if only by the fact that their product and/or service is ultimately consumed, or not, by people who live in houses?

Seriously, think about it – food and Shelter. EVERYTHING else is just frosting. Groceries and a roof over your head. Nourishment and protection from the elements. Ultimately what else is there? Nothing, the buck stops there or starts there as the case may be.

My money is on real estate over the financial markets. I’m willing to bet, as I am, that when it comes right down to it people will walk away from the stock market long before they ever will, because they can’t, the real estate market. Even if they rent they are creating a demand for the product another merely rents instead of selling to them. Do you think the automobile makers would go broke if everybody started renting or leasing cars instead of buying them?

Right now though, in the short run, Babyboomers who did not seriously enough contemplate their twilight years will frantically be looking for some way to catch up. Garths advice can help them there. As far as I go; I’m content enough helping Babyboomers rearrange their real estate holdings until such time as we shift gears once again and some other demographic demands more of my attention than the they do.

Historian Adam Fergusson discusses his cult-classic history of the Weimar hyperinflation, When Money Dies, with James Turk from the GoldMoney Foundation. In this video, they discuss the lessons that can be learned from the Weimar hyperinflation, and how – to quote Lenin – debauching a nation’s currency is a sure way of debauching the nation.

“Every dollar borrowed for a mortgage, a credit card or a line of credit is backed up by the deposits (savings) of someone (or the equity and debt of a bank which also represent someone’s savings).” – InvestorsFriend (Shawn Allen)

Sure, that is why banks were leveraged around 30 times in 2006 and around 12 to 14 times now. In fractional reserve banking there is no such a think as savings equal debt.

November will be the converse of October, December a push then the bear will sink it’s teeth and drop the market around 80 percent in the next 3 to 5 years. Get short at the “close” November the first.

The people on this blog today are unreal. Most of them. Doesn’t anybody ever questioned what they think they know? Where’s the logic and common sense?
Look at the other side of the coin.
Too many defeatists, doomers and plain wackos.

#193 Junius – Blaming the banks is like leaving a turkey on the floor and blaming the dog for ruining Christmas dinner. Traders are motivated by greed but fear loss. In a free market lenders will never make a loan if they weren’t confident the loan could be repaid. If borrower defaults they eat the loss. It was gov’ts around the world pandering to the masses who created the bubble by removing lending risk & guaranteeing mortgage loans. This was done for political purposes.

I’m not a fan of Paulson but when the inevitable crisis hit he recognized what this was and was prepared to act. The brits recognized the danger but chose to play politics. Lehman was allowed to fail and we all paid the price. Jobs in every sector of the economy were needlessly lost because politicos were worried about the optics of a bailout.

This isn’t about bailing out banks, its about bailing out the middle class. This is about foolish politically motivated policies spurring reckless behaviour on the part of consumers. These are our friends and neighbours who greedily took on debts they knew they couldn’t repay. They all got to live the high life during the boom and won’t pay the consequences. Unlike the days of old debt isn’t the burden it once was when debtors prisons or indentured servitude existed. Just because they all get to walk away doesn’t mean the debt disappears. The loss has to be accounted for and its the rest of us who get to pay the price. I don’t blame the banks, they are simply doing what is in their nature to do. I blame the morons who took on the debt in the first place, they are the true cause of the crisis.

-Nevada “The first state to pass such a law.”; Economic History If unlearned, we’re doomed to repeat it; 28:43 clip Man, the economy and liberty; OWS Getting bigger? Ice Cream Cake We may as well enjoy ourselves; Jobless Veterans Military experience not necessary; Russia If China calls its debts in and, along with Russia, bails out the EU, it might give a different perspective on things.Super Congress What if they decided to fire themselves?

Gold Reserves Central banks topping up; Goldman SUX? “The true enemy has just revealed themselves to you all!” wrh.com; Oh dear There seems to be a consistent link, between the govt. starting companies which go bankrupt; 5:08 clip CNN now says Ron Paul makes sense; GS Didja hear the one about the criminal banxters? Wall St. dog’s banxters; GS again Oh these tangled webs of deception we weave.

Thorium may be a lot better and cheaper thhan uranium for nuke power, but vested interests think otherwise; Distort The obvious reason why the Vatican has endorsed a world bank is to pay off all the legal judgments against them; Damn good idea “The Nobel Peace Prize is a total joke. Having been given to people like Henry Kissinger, Al Gore, and Obama, it isn’t worth the pot metal under that cheap gold plating.” wrh.com; Great Bragging See the head; Mobile Phones Fortunately, I don’t use one so nobody knows where (or who) I am! Horn of Africa Again, the US goes where it’s not invited; Sheriff If a sheriff says this, it’s time to take a look at what all levels of govt. are doing.

Occupy Pakistan Someone doesn’t want the US there anymore (can’t blame them); Lone Wolf “Which is why the US gave those bunker-buster bombs to Israel last month! Fear. Right. Sure. No kidding. Fear. ” wrh.com; Energy Quotient Not the same as Intelligence Quotient, of which I routinely come in at minus 35; Snow Storm “Gosh DARN that global warming!” wrh.com.

You seriously think we should blame the borrowers but let the banks off the hook for responsibility? Nonsense.

Who is in a better position to understand the economy? Give us a break. Paulson bailed out his Wall street buddies except for Fuld who he despised. The US should have followed Sweden in the early 90s and fired all the CEOs and taken over the banks, written down the debt and restarted the viable ones.

Interesting video, which all things being equal I might agree with more, but for the comparisons against history. This time it is a bit different in that we are all a lot more interdependent upon one another. Debauching a nation’s currency would not be quite so isolated in this day and age, as I am sure you would agree we are seeing evidence of on a regular basis these days.

Stock markets rally and retreat instantly on news from lands which in history seemed far, far away as news then took months to arrive from those shores to ours.

But debauching a single currency is difficult these days as those outside interests can be so great it causes them to step in and prop or lift up what might otherwise fall down. No one fails, everyone gets a bronze or maybe silver star with fewer gold are given out.

As Garth says… don’t expect to be paying for your gas with a Canadian Maple any day soon. Should it come to that your gold won’t save you anyway. But hey I understand, gold has rallied and you’ve enjoyed a gain… don’t get too greedy. It ain’t any different than any other bubble/rally.

158 Shawn – good recovery – 164 Junius – not so good.
Just when I think you are beginning to grasp it – poof…
(and sigh)

I’ll challenge you (and bloggers “fractional reserve” and
“Behavioural finance”) with this notion. Think about it
very carefully.

If you are like many, you work for a living and collect a paycheque, or receive cheques from clients or accept credit cards from customers. If you receive $1000 from these sources, and spend $800 on all expenses, how
much have you saved?

Most people would say $200. We think that because we
worked hard for that $1000, and were thrifty enough to
live under our means. It’s real because our labour has generated it. But according to you we cannot say that because we do not know the origin of the $1000. We simply cannot trace it back far enough to its roots to know if it was printed currency, savings of one party, or debt of another.

So if you don’t believe this bank balance
represent “savings”, then you will have no problem writing cheques to Garth, who can in turn forward them to me with his “Central African cut” of 20%.

Woah… back up there buddy. Seriously back up. Wasn’t it the Clinton administration which initiated the movement of those wheels under the real estate markets which eventually came off? Wasn’t it your Democrat friend who made the initial moves toward making housing more accessible to those previously blocked from it? Wouldn’t you agree that is where it all started? Dont get me wrong, I like Clinton – really I do. What I am about to say could easily come true of many a political party which became the ruling power. .

Government run the banks? Ya right. You think Wallstreet has become corrupt by their influence – put the government in complete direct unilateral control and see what happens to your liberty.

Never going to happen. The Americans won’t let our government take over the banks, not even our own. And the American people won’t let their government take over their banks. That’s why they still have their guns, not so much to protect them from criminals but rather more to keep their government in line.

He just made the best case i have seen recently thzt banks require stricter regulation. It would take a realtor not to recognize this. Lets hope Elizabeth Warren makes it to the Senate.

I prefer to think of it as; government should not make such stupid short sighted policy decisions before contemplating what “putting the turkey on the floor might cause the dog to do about it” to paraphrase Cato.

Again, Junius, back up. Literally back up in time to find the true culprits if only that they succumbed to influence. Either one or the other it does not matter as it is they we elected and trusted to do what is best for us. Not private enterprise who we know who when acts for themselves does so short sighted as ultimately we have a more resounding vote against them who have no army.

#183 Neo. Garth’s response ” nowhere did I say this was a secular bull”

I recall not to long ago Garth, that when I mentioned that we have been in a secular bear market for stocks this past ten years ( now going on 11, the lost decade) you you said that quote ” The secular bear argument is bull” unquote.

Which is it, bull or bear?

Neither. As I have stated, we should expect a lengthy range-bound market. — Garth

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Semantics Garth. Semantics. We’ve been range bound for 11 years now. Unlike the secular bull market that preceeded this from 1982-2000 where we went from 1000 to 10,000 on the Dow. Going sideways IS a main ingredient in a secular bear market, where unlike a secular bull market, buy and hold is foolish. We will be breaking out of “this range” by 2018 -2020 which is when the structural issues, bloated debt, boomers and social programs of developed nations will be adequately deleveraged to start another major credit boom/bust cycle (and with it the start of another housing bubble that kids born in 2000 will be participating in at its peak. They would have no recollection of this one the same way thirty somethings right now can’t remember the last one in Canada.

Debt is on the balance sheet.
The net debt of the fed Govt – about $550 Billion is matched with bonds purchased by Canadians, pension funds, corporations and some foreign countries (due to the current account deficit).

The net debt = the net savings of Canadian and foreign savers. It’s double entry bookeeping.

Money creation is originated by the fed Govt when they spend into the economy. They tax us to drain money from the economy. The fed deficit is the new money created and through BoC operations purchased by issuing bonds to savers. This is how modern money moves through the system. The banks, individuals, corporations, pension funds, farmers, provinces and cities are all currency users. We MUST borrow first and then spend if we don’t have enough savings. The federal Govt spends first, then taxes, then borrows. They can also forgo this borrowing by just spending money into the economy but it could be inflationary and may affect exchange rates.

#181 Ottawa Mike – “Tempo is a Montreal/Ottawa expression used to describe those temporary(tempo–geddit?) tent garages that people use during winter.”

Thanks for the definition Mike. Yes, those temporary (year round) tents that people use to store their RV’s, boats, cars, and other toys in their yards and driveways. I don’t blame anyone for being annoyed by these cheap excuses for garages.

There were so many on our street it was beginning to look like an army tent camp.

During a heavy wind storm, the neigbours tent garage took flight and I had to chase it halfway down the street as it took off like a parasail. These things are nothing but eyesores and I don’t blame anyone for speaking out against them.

#185 Cato – “Travel back in time I guarantee you’ll find one caveman tricking another caveman out of a meal. We might smell nicer & dress a little better but at the end of the day our minds aren’t really that far away from the stoneage.”

If the world was to go to hell in a handbasket today most people would not be able to survive. The caveman, however, could. I sometimes think that the more we advance the dumber we, as humans, get. That’s why Garth lives in a bunker with all his survival gear. One blackout in the city was enough for him I believe.

So you see Cato, our minds are actually getting farther away from the stone age. We don’t even know half what our parents and grandparents knew about survival.

Just look around you and what do you see. People walking around with I-pads and smart phones totally oblivious to what is going on around them. Couples and families sitting around in restaraunts, riding the subways and ferries, texting, tweeting, talking on their cell phones. A society where rudeness is acceptable just as it was when people were allowed to smoke in public before it was banned. At least now we have laws that make it unlawful to drive while talking or texting on cell phones and other devices.

So many things to keep people distracted. It’s no wonder they are such easy marks for the con sharks and others that are ready to pounce on them and extract their wealth.

Eggs alone have gone up over 10% in the past 6 months??? So you really believe I’ll believe those CPI numbers coming from the FED. Not a chance, because I see it with my own eyes….
Top sirloin steak up 30%, laundry soap up 30-40% since summer…..Cereal up 15 to 20% since the spring….
I know, I’m on a shitty pension and watch those prices like a hawk.

#238… Guido… don’t worry, I’m not on a pension, and I’m watching those prices too. I often post on here about the REAL inflation occurring in consumer prices. You have to be a fool (there’s plenty) to believe in official government or central banker numbers, statistics, or press releases.

#237 Ronaldo… we haven’t advanced spiritually. Or even technologically if you go back far enough for comparison. There’s a freakin’ mile high, mile wide face, carved in rock beside a city of pyramids… on the planet Mars. The Cydonia region. Look it up. As of right now, most of our generation is not convinced we even made it to the moon, so how did our ancestors play with giant rocks on Mars?

Yes, we are really, really good at blowing stuff up. (With miniature versions of those explosions used in our preferred mode of transport to get us from our homes to the store a few feet away to buy milk). And paying our brethren peanuts to make things faster and faster, so that we may have more of nothing. Oh yeah, and using electromagnetic waves to communicate close to the speed of light, the same mumbo jumbo puppet language we learn from our rulers. Like I said yesterday, Is This Progress? (Title of my upcoming new book). It’s an open-ended question.

236 Disc – you cant answer it either eh? But you of all bloggers must understand the premise. The source does not matter. If you believe the debt – or more correctly the
contract of debt – is real, then there is a corresponding
saving that is real.

that didn’t take long.
And probably won’t last long. The outcome of this has been known for a long time. There will be a partial default (as posted here several times), and it will be a yawner. — Garth

Answer what? I didn’t ask a question. The source of the printed money is thin air. There is an expectation that it will become real through labour, but until that happens, it’s still thin air. I write $1000 dollars on a piece of paper and hand it to you. But I have no savings to back it up. That is fraud. Exactly what central banks are engaged in. Address this point or you lose the argument. Well, you lose either way… What you are afraid of is, finding out that the Wizard of Oz is just a little old man.

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The views expressed are those of the author, Garth Turner, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.